Thursday, March 31, 2011

More Policies: Tories on Trade, Grits on Pensions, Dippers on Corporate Taxes

The second batch of policy announcements is, on the aggregate, somewhat better than the first, but still unimpressive to me.

The Tories reiterate their support for free trade agreements, which I generally support, but offer few details. They also say that under a hypothetical "Liberal coalition," free trade agreements wouldn't happen. Does this mean that if the Liberals win and propose a trade deal, the Tories would side with the NDP and the Bloc in opposing it? To me, this issue doesn't put too much light between the two main parties: perhaps the Conservatives would be somewhat more proactive than the Liberals in seeking trade agreements, but the Grits are hardly protectionists. Still, this is a much better policy than the ill-conceived family tax cut announced earlier.

I have little to say about funding the hydroelectric project in the Atlantic: I don't know enough details to determine whether it's a good project. If it is a worthwhile investment, the appropriateness of federal funding depends on one's own view of the federation. Although given that Hydro-Québec did not get any help from the federal government over the years, the Bloc is totally justified in hammering this move. (Yes, the Bloc is often too whiny, but not on this one.)

The Liberals want to expand the CPP, allow Canadians to invest more with the CPP, and expand the GIS. I'm generally against the first idea, in favour of the second, and neutral concerning the third.

My opposition to an expansion of the CPP is because my generation is already getting a pretty bad deal out of it because we're effectively subsidizing seniors. While CPP long-term real returns are forecast at about 4%, Canadians born between 1970 and 2000 will only get a 2.2-2.4% return on their contributions according to the latest CPP actuarial report (see page 74). Instead of their money doubling every 18 years or so, people under 40 have their money doubling every 30 years. This is because those born before 1950 are able to enjoy returns above 4%. An expansion of the CPP, even gradual (unless it's done over 40 years), will further disadvantage young workers.

Allowing Canadians to invest more with the CPP is a good idea. Many people might like to save more, but do not know how to appropriately invest their savings. Moreover, asset management fees are often ridiculously high. The CPP would provide a low-cost way for Canadians to benefit from professional financial services. The flip side is that it wouldn't be a personalized option, so each citizen will have to assess whether the CPP strategy responds to their needs - but at the very least, having more choice won't hurt. Because additional contributions are capped at the RRSP deduction limit, this policy probably won't put too much strain on the CPP investment board or squeeze the private asset management industry too much. I'd like to see this policy implemented.

Finally, whether you want to expand the GIS is essentially a moral question concerning your attitude toward redistribution and how responsible poor seniors are for their situation.

The NDP keeps on going with economic policies that sound good, but either won't work or aren't cost effective. Why increase the gap in tax rates between large and small companies? Doing so increases the amount of economic distortion (you're essentially penalizing successful firms that become big), and is a woefully inefficient way of doing redistribution. Indeed, corporations aren't people: their owners/shareholders are. Are shareholders of big firms richer than owners of small businesses? Keep in mind that big firms are often largely owned by pension funds, which represent average Canadians. A much more effective way to redistribute is through the personal income tax system. Unfortunately, at the NDP, when populism and progressivism clash, the former often wins out.

The tax credit for creating new jobs will run into trouble too. Do I get the credit if I fire a worker and hire someone else the next day? The next week? The next month? The next year? Also, you would be penalizing firms that held on to their employees through the recession (because they wouldn't be able to get the credit by "creating" jobs) and paying firms that got rid of workers at the first sign of trouble. Guess what they'd do the next time around...

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